If you are looking for something to invest in, you may have been considering commercial leasing. There are several commercial lease types, and understanding some basics about them is an essential first step before contacting commercial real estate brokers or investing in commercial property.
What is the Most Common of the Commercial Lease Types?
Triple net properties, or the NNN lease, is one of the most popular for commercial leasing. A triple net lease is so called because the lessee agrees to pay three nets to the one leasing. In NNN deals, the lessee pays real estate taxes, maintenance fees, and the building insurance. These commercial lease types involve the least amount of personal, day-to-day investment of time and effort on the part of the owner because most issues are left to the tenant to deal with. The tradeoff is a lower lease payment.
What Does it Take to Invest in These Commerical Lease Types?
Anyone investing in a commercial triple net lease offering must have a net worth of $1 million and be accredited. The net worth excludes a minimum of $200,000 of annual income and the value of the investor’s primary residence.
Is a Triple Net Property Investment Safe?
Investments are by nature always more or less of a risk. This is important to remember up front. However, when the economy is sound, commercial property investment can be one of the safer ways of investing money. In 2016, the United States built more than $74 billion worth of commercial buildings. Leading up to 2017, the demand for commercial real estate services grew steadily. In 2015, investment surged by 85%. This is fueled in part by strong demand for office space. Higher tenant interest in the third quarter of 2017 caused leasing activity to reach a high of more than 62 million square feet, which was the greatest amount of activity that had been seen for several years.
Understand Your Potential Tenants
The risk of a commercial lease property is greatly determined by who leases a property. It’s important to evaluate credit rating, debt to equity ratios, operating margins, management stability, and the overall outlook for their sector of industry. Some sectors perform well in nearly every economic climate, while some see a boom during certain periods and go bust in others. This is where having the right broker to advise you become crucial to understanding the market.
All commercial lease types and investments involve risk. This does not mean that the rewards are never worth it. Educate yourself on the basics, get the right broker, and see how the right NNN deals could be a great way to invest.